Rising Interest Rates Are Another Blow to Affordable Housing Market

August 14, 2018                        By: Orla McCaffrey

Higher borrowing costs make new projects harder to launch and put future refinancing into question

Rising interest rates are undermining efforts to build more affordable housing, creating larger funding gaps for an industry already grappling with cuts in government subsidies and rising construction costs.

This year’s climb in borrowing costs—coupled with expectations that they will keep rising—has driven down the amount of debt used to fund affordable housing deals, said Michael Novogradac, managing partner of Novogradac & Co., an accounting firm that specializes in affordable housing.

The Genesis Apartments in New York's Harlem are a mixed-income housing project completed in 2011.  PHOTO: Joanna Huckeba/The Wall Street Journal

While national data on the closing rates for affordable housing financing isn’t widely collected, many developers say the rates offered by major national lenders have risen steadily in the past two years. At Bridge Housing, one of the largest affordable housing development groups on the West Coast, both short- and long-term debt rates have climbed.

The permanent debt rate—a measure of the long-term debt projects pay to lenders—was 4.18% for a Bridge project completed in the Mission District of San Francisco in 2016. This year, a proposed development less than a mile away, with the same developer and a similar amount of debt, closed at a rate of 5.06%. The fed-funds rate rose about 1% in the interim........................Read More